QUESTION: Is it better to pay someone to do your tax return or do it yourself?
ANSWER: First, I think it is important to say that whether taxpayers do their returns themselves or hire a tax preparer, taxpayers are legally responsible for what’s on their return. So taxpayers should read their returns carefully and check accuracy.
That said, who does your return depends on the complexity of the return. Tax preparers do almost 60 percent of all returns filed. I strongly recommend electronic filing for all taxpayers because the software will help identify credits and deductions they may not be aware of. And using direct deposit for refunds can put refund dollars into bank accounts in as few as 10 days.
Q: How can you tell whether someone is a reputable tax preparer?
A: Most return preparers are professional and honest, and provide excellent service to their clients.
Here are a few points to keep in mind when choosing:
>> Check the person’s qualifications. Ask about affiliations with a professional organization and for a Preparer Tax Identification Number (PTIN) from the IRS.
>> Check professional history. You can do this through the Better Business Bureau.
>> Ask about service fees and avoid preparers who base fees on a percentage of a refund or claim they can obtain larger refunds than other preparers.
>> Make sure the preparer is accessible. You want to be able to contact him or her after the return has been filed.
>> Never sign a blank return. As I noted above, you are responsible for your own tax return so review the entire return carefully before signing it. And make sure the preparer signs the form and includes a PTIN. The preparer must also give you a copy of the return.
Q: How can you check preparers’ credentials?
A: You can check their history with the Better Business Bureau and for any disciplinary actions and license status through the state boards of accountancy for certified public accountants; the state bar associations for attorneys; and the IRS Office of Professional Responsibility for enrolled agents. As I mentioned previously, they should have a Preparer Tax Identification Number.
Q: What items on your tax returns might be red flags for the IRS?
A: Failure to report all of your income is a good way to draw the attention of the IRS.
Q: How necessary is it to keep receipts when filing your taxes? Is it OK to estimate or are receipts absolutely necessary?
A: Keeping well-organized records ensures you can answer questions if your return is selected for examination or if you receive an IRS notice. Generally speaking, you should keep any and all documents that may affect your return. Individual taxpayers should usually keep the following records for at least three years: bills, credit card and other receipts, invoices, mileage logs, imaged or substitute checks or any other proof of payment, any other records to support deductions or credits claimed on your return. And you should normally keep records relating to property until at least three years after you sell or otherwise dispose of the property. Some examples are home purchase or improvement, stocks and other investments, IRA transactions and rental property records. You can also check out IRS Publication 552: Recordkeeping for Individuals, Pub. 583: Starting a Business and Keeping Records and Pub. 463: Travel, Entertainment, Gift and Car Expenses.
Q: Where can consumers get free, legitimate tax preparation?
A: The IRS has FreeFile on our website (www.irs.gov), which offers e-file software capability for taxpayers who earn $58,000 or less. There are also online fillable forms everyone can use. Fillable forms are online versions of IRS paper forms. The IRS partners with many community organizations for the Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs. These programs provide local sites that provide free tax preparation and e-file to taxpayers who earn less than $49,000 or are age 60 or over. Taxpayers can also visit an IRS Taxpayer Assistance Center office to have questions answered and get help with their returns. (In Honolulu, the office is at 300 Ala Moana Blvd.)